Tobacco company big on loyalty, trust

Santa Fe Natural Tobacco Company has built a solid growth record by building rapport with customers and growers alike.

The company contracts directly with tobacco growers for organic and Pesticide Residue Clean tobacco for use in their products aimed at an upscale market.

Santa Fe, purchased by R.J. Reynolds Tobacco Company in 2002, points out that it is proud of its more than 75 percent compound annual growth rate over the past dozen years. Major tobacco companies have often posted losses over the past decade.

Put into perspective, Santa Fe produces in a year what most major manufacturers produce in the same time frame.

“We're a niche market. We have a direct rapport with customers,” says Fielding Daniel, the company's manager of leaf purchasing and blending, as a way of explaining the growth. “We also have a direct rapport with the growers; they want to grow for us.”

Santa Fe had its beginnings more than 20 years ago on the Indian reservations of New Mexico. Robin Sommers, a founder and former CEO of SFNTC before the sale to RJR, envisioned a company where Native Americans would grow and package roll-your-own tobacco and cigarettes without additives. Only later, when he learned that tobacco was grown under a quota system, did production shift to the east coast.

In December 1996, SFNTC constructed a new $4.5 million, 82,000 square foot facility on a 25-acre plot on Knotts Grove Road just south of Oxford, N.C. The new facility included a primary tobacco-processing unit, along with an increased capacity for additional cigarette lines. In 2004, the company moved all of its original cigarette making and packing lines to the new facility, where two more modern lines had earlier been installed.

SFNTC is in the process of adding another 20,000 square feet to produce blended strip tobacco for us in its new German manufacturing facility, in an effort to be “totally integrated.”

Little has changed from the days when it was an independent company until today when it is under the RJR umbrella, Daniel says. “They recognize that we're a niche market,” he says, “but we are totally separate company, which is great. We have the benefit of having some of the support that RJR has to offer and still remain independent in the way we do business.”

The culture at the factory in Oxford is as far removed from that of a major cigarette manufacturing plant as it is from the United States to Europe. Employees and top brass often work side-by-side. On one recent day, Steve Bass, the director of manufacturing, was on the line, checking packages. “There's nothing to hide,” Daniel says. “We've always told the customers what's in our products — basically all-natural tobacco. I think loyalty and trust are hard to find.”

Today, the company sells its natural tobacco products about the same way it did when it was independently owned. It has a sales force of only 20 and relies on customer loyalty. “This product carries on by word of mouth. People move the product through other people,” Daniel says. Some of those customers regularly order directly from the company. Santa Fe's products are also sold in Japan and the European Community.

Early on, Santa Fe attracted tobacco growers with premiums not found in conventional tobacco.

“We've always tried to support the smaller grower,” Daniel says. “With the climate out there in the tobacco industry nowadays, we don't want to take anybody for granted.”

Working with growers on an agronomic basis, Santa Fe provides a one-on-one relationship. Peter Hight, and other agronomists with the North Carolina Department of Agriculture and Consumer Services; Sterling Southern, North Carolina State University Extension entomologist; and Santa Fe advisors work with both organic and PRC growers to find solutions to nutritional and insect problems in the field. Some 20 to 25 growers produce the company's organic flue-cured and burley tobacco.

Stanley Hughes of Hurdle Mills, N.C., has been growing organic tobacco for Santa Fe since 1996.

The organic tobacco falls under the purview of the USDA Certified Organic Regulations. Both the contract growers and the manufacturing and storage facilities must be certified in order to claim the “organic” label.

Working with Universal Tobacco and United Tobacco, Santa Fe provides the growers with a protocol of chemicals that may or may not be used. The company runs tests on the tobacco in the barn and in the field to verify it's residue-free. “If the crop is disqualified from the PRC program, it can still be sold through a conventional source.”

Santa Fe has been paying contract growers a premium for quality tobacco that meets the organic or PRC standards of purity, respectively.

Instead of promoting the PRC tobacco with a specific cigarette product, Santa Fe uses the “residue-free” tobacco to reduce the overall residues on its conventional tobacco, Daniel says.

Daniel frequently hears from farmers about the benefits of growing organically or using fewer chemicals. “It's economic and environmental stewardship,” he says. “Our growers tell us they're seeing more quail on their farms — that's a species that was vanishing. We've also encouraged our growers to use longer rotations.”

In describing the typical Santa Fe grower, Daniel says, “99 percent of them grow with us because of the relationship. We've got growers who would do organic or PRC, if there were no premium while others are strictly looking at the premium.

“Either way, the one-on-one relationship is the key,” Daniel.

“We're lucky enough to be a small manufacturer that's growing our own tobacco,” Daniel says.

“When a farmer sees the product on the shelf, they have some ownership of it,” Daniel explains. “They know that some of their tobacco is in that product.”